Correlation Between Southwestern Energy and Coterra Energy

Can any of the company-specific risk be diversified away by investing in both Southwestern Energy and Coterra Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Southwestern Energy and Coterra Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Southwestern Energy and Coterra Energy, you can compare the effects of market volatilities on Southwestern Energy and Coterra Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Southwestern Energy with a short position of Coterra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwestern Energy and Coterra Energy.

Diversification Opportunities for Southwestern Energy and Coterra Energy

0.12

Correlation Coefficient

Southwestern Energy  Coterra Energy

Average diversification

The 3 months correlation between Southwestern and Coterra is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Southwestern Energy and Coterra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coterra Energy and Southwestern Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Southwestern Energy are associated (or correlated) with Coterra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coterra Energy has no effect on the direction of Southwestern Energy i.e., Southwestern Energy and Coterra Energy go up and down completely randomly.

Pair Corralation between Southwestern Energy and Coterra Energy

Considering the 90-day investment horizon Southwestern Energy is expected to generate 1.1 times more return on investment than Coterra Energy. However, Southwestern Energy is 1.1 times more volatile than Coterra Energy. It trades about 0.41 of its potential returns per unit of risk. Coterra Energy is currently generating about 0.13 per unit of risk. If you would invest  617.00  in Southwestern Energy on September 2, 2024 and sell it today you would earn a total of  94.00  from holding Southwestern Energy or generate 15.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	32.81%
Values	Daily Returns

Southwestern Energy  vs.  Coterra Energy

Southwestern Energy

Risk-Adjusted Performance

0 of 100

Very Strong

Over the last 90 days Southwestern Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, Southwestern Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Coterra Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coterra Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Coterra Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Southwestern Energy and Coterra Energy

The main advantage of trading using opposite Southwestern Energy and Coterra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwestern Energy position performs unexpectedly, Coterra Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Coterra Energy will offset losses from the drop in Coterra Energy's long position.

The idea behind Southwestern Energy and Coterra Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.